the consumer’s guide to auto insurance...injury every 14 seconds, and every 13 minutes a car...

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The Consumer’s Guide to AUTO INSURANCE

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The Consumer’s Guide to Auto Insurance

When the first U.S. automobile insurance policy was purchased in 1898, there were

barely 100 cars nationwide. Horses and carriages ruled the roads and the main

concern for both insurers and auto drivers was any injury those noisy new ma-

chines might cause to horses.

Today, a motor vehicle accident occurs every second. Auto accidents cause an

injury every 14 seconds, and every 13 minutes a car accident results in a fatality.

More than 31 million accidents occur annually at a cost of more than $100 billion.

Theft and vandalism are other major perils— a vehicle is stolen every 20 seconds.

With more than 150 million drivers and registered vehicles on the road, auto

insurance is the most widely purchased of all property-casualty insurance, yet few

drivers are familiar with the details of their particular policy.

Trusted Choice® insurance professionals want to make it easier for you to under-

stand your insurance needs and the many options available to you. Though this

guide does not represent the provisions of any particular policy, it can serve as a

starting point on your road to finding the best policy for your needs.


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Questions Index

1. Why do I need auto insurance?

2. What are the different types of policies and what do they cover?

3. Why and how are policies priced for different drivers?

4. How does where I live affect my premium?

5. Why are rates different for different cars, even if the cars are the same price?

6. What is “no-fault” insurance?

7. Do all states require some kind of liability insurance?

8. What happens if I have an accident with an uninsured driver?

9. Why would my insurer cancel my policy?

10. What do I do if my insurer cancels or refuses to renew my policy?

11. How do I keep my insurance company from canceling my policy?

12. What steps can I take to reduce my rates?

13. How does adding drivers to my policy affect my rates?

14. Who’s watching the insurance companies?

15. Do I always need to buy insurance when I rent a car? Am I not covered by

my own policy?

16. Am I covered for natural disasters or “Acts of God?”

17. What happens when I loan my car to someone? Is that person covered by

my policy? Am I still covered?

18. What should my policy include? Do I really need to read all the fine print?

19. What actually happens when I report an accident?

20. How can I challenge my insurers if they refuse to cover a claim?

21. Under what circumstance do I not need certain types of auto insurance?

22. Do I need special insurance for a classic car?

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Why do I need auto insurance?

Your car is likely one of the most expensive things you own. Insurance protects

your investment and guarantees a way of coping with the expense of accidents,

vandalism or theft. It also secures your financial responsibility to the institution

lending you money to buy your vehicle.

When you drive you are responsible for the safety of your passengers, your fellow

drivers, other people’s property, pedestrians and yourself. Insurance helps ensure

your ability to cover the costs of potential damages or injuries.

There are also requirements to be financially responsible in state laws, which

are best satisfied through your insurance coverage. In most states insurance is a

prerequisite to registering your car. So if you want to drive your own vehicle, you

must be insured.

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What are the different types of policies and what do they cover?

Auto insurance is divided into several types of coverage:

• Liability covers damage you cause to other people’s property and injuries to

the people.

• Collision covers damage to your own vehicle in an accident.

• Comprehensive covers losses other than collision, such as fire damage to

your vehicle, break-ins, vandalism or theft, as well as natural disasters (earth

quake, hail, hurricane, flood, etc.).

• Medicalpayments insurance, usually in the range of $1,000 to $5,000, covers

medical expenses for injuries. This “good-faith” coverage guarantees imme-

diate medical payments for you, and your passengers, regardless of who is at

fault. It also covers you and members of your household as pedestrians if

struck by an automobile.

• Uninsuredmotorist (UM) and underinsuredmotorist (UIM) coverage

protects you if you are injured in an accident caused by others who carry

insufficient or no liability insurance.

• Extracoverages include expenses for towing, labor, “no-fault” coverage, etc.

These are generally provided as add-ons or “endorsements” to your policy.

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Why and how are policies priced for different drivers?

Drivers are grouped according to the level of risk each one poses—i.e., the amount

of loss incurred by insurers within categories of policyholders. For various reasons,

where permitted by law, drivers are often categorized by:

• Sex—Men have more accidents on the road than women.

• Age—Drivers under 25 (and, for some insurers, under 30) are considered at

higher risk of having an accident.

• MaritalStatus—Married drivers tend to have fewer accidents than single

drivers.

• PersonalDrivingRecord—Years of driving experience, accidents, speeding

tickets and drunk-driving offenses are all factors in determining how much

of a risk you pose as a motorist.

• HowYouUseYourVehicle—If you commute by car during rush hours,

you’re at greater risk of having an accident than if you only drive for errands

and recreation on the weekends. Drivers who use their own vehicles for

business also are considered to be at greater risk.

• TypeofVehicle—The value, size, weight, age of your vehicle, even the cost

of replacement parts, are essential to determining the price of your

insurance. The cost of your insurance policy is largely based on the average

cost of covering actual losses, spread out over your particular “rating group”

as a whole. Of course, you may rarely have an accident or have your car

stolen, and therefore will rarely need to be compensated. But others in your

category may not be so lucky. Your premium will help to pay for their losses,

just as their premiums would help to pay for yours.

For example, if you are a 23-year-old man and you park your new sports car on

a downtown street in a large city, you will likely pay more for insurance than a

37-year-old woman who parks her four-wheel-drive in the suburbs, simply be-

cause, based on average losses, you have a greater chance of having an accident or

being the victim of auto theft.

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How does where I live affect my premium?

Where you live (or, more precisely, where you keep your car) has a bearing on your

chances of having an accident or becoming a victim of theft or vandalism. That’s

why, all other things being equal, a vehicle owner in Brooklyn, N.Y., may pay a

higher rate than the owner of an identical vehicle in Casper, Wy.

Other factors affecting regional insurance rates include time and efficiency of

police response and law enforcement, local road and traffic conditions and the

quality of local medical services. Insurers even factor in the litigation rates in a

given area—that is, how many lawsuits are filed, go to trial, are settled out of court

and for how much.

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Why are rates different for different cars, even if the cars cost the same?

Vehicles are also grouped into categories according to their likelihood of being

damaged, vandalized or stolen. Insurers generally consider the size and type of

vehicle, as well as the value and the cost of repairs (which can vary greatly, even on

vehicles that cost roughly the same). Thus, a new station wagon may be expected

to hold up better in an accident than a sports car or a subcompact.

Putting insurance aside, safety is key when buying an automobile. Your life de-

pends on it! Some cars are considered safer than others because of their perfor-

mance record in safety tests and real accidents.

That’s why you should research insurance coverage before you buy your car. It

helps you to understand the actual cost and indicates those vehicles with good

safety records. Your insurer will ultimately reward you for putting safety first.

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What is “no-fault” insurance?

No-fault insurance is a system adopted in some states that essentially bypasses

the conventional legal procedure which finds fault in many accidents. (This is the

procedure by which you hire a lawyer, file suit and possibly go to court to prove

the accident was the other guy’s fault.) No-fault simply does away with the concept

of one party or the other being at fault. There are no lawyers, no court, no judge,

no jury, no lengthy lawsuits against the other party. This is considered beneficial to

taxpayers, because it eliminates costly legal proceedings that the state must man-

age, and to insurance policyholders, because it helps keep rates down.

If you are insured in a no-fault state and have an accident, in many instances you

don’t go after the other driver. You contact your own insurer and file a claim. Your

own insurance policy compensates you for damages, medical expenses, lost wages,

etc.

The type and range of no-fault coverage varies from state to state. What defines

the limitations of no-fault policies can differ in two critical areas:

• Threshold—The type or cost of damage/injury that triggers the need for

legal action.

• MandatedBenefitLevel—The package of benefits (medical, wage loss, re

placement services and other expenses) your state requires you to carry.

The details of no-fault insurance can be complicated. Contact your agent or your

state’s insurance department for further information.

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Do all states require some kind of liabilityinsurance?

No. Some states, while not mandating auto insurance, have “financial responsibili-

ty laws” that require all drivers to be able to pay for any damage or injury they may

cause. However, carrying liability insurance is still the best way for you to meet

your state’s financial responsibility requirements.

Uninsured motorists (UM) and underinsured motorists (UIM) policies are offered

by law in all states, including no-fault states. In fact, some states require all motor-

ists to carry this coverage to gain protection from inadequate insurance coverage

of other drivers.

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What happens if I have an accident with anuninsured driver?

First, call the police to the scene to be sure all pertinent information is properly

recorded. Your nerves will be shaken right after an accident, and it helps to have a

calm and knowledgeable person walking you through the necessary details.

Then, contact your Trusted Choice® insurance professional immediately and ask

about filing a claim. If you followed all the recommended guidelines when you

bought your policy, you should be covered within the limitations of that policy.

Remember, your insurance policy is designed to protect you.

If the cost of your damages or injuries exceed the amount your policy will pay out,

it may be time to take legal action against the other party. Even if you have no-

fault insurance, sometimes the only way to be compensated is to place blame and

responsibility where it belongs.

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Why would my insurer cancel or not renew my policy?

Technically, in most states your insurer can cancel your policy only if:

• you fail to pay your premium;

• a driver loses his or her driver’s license;

• you are guilty of material misrepresentation during the application process

(e.g., you fail to notify your insurer of a recorded violation such as a drunk-

driving offense)

However, your insurer can choose not to renew your policy for a variety of rea-

sons, from driving citations to poor driving experience.

Where do you live? Has the neighborhood changed in the last few years? Have the

accident or crime rates risen noticeably? As regions are reassessed periodically,

their status could change and you could suddenly find yourself living in a high-

risk area where your insurer’s rates may not be adequate to cover losses.

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What do I do if my insurer cancels or refuses to renew my policy?

Even “good” drivers can be dropped by their carrier. Reasons range from a “drink-

ing while driving” violation or other serious violations (that make you a high risk)

to situations outside your control, such as when insurers in your state are suffering

severe business losses. Overall rises in claims or losses can cause insurers to be-

come highly selective in determining whom they can afford to insure.

If you are licensed to drive, by law, you are probably eligible for insurance.

However, your options for new coverage may be limited. Each state has created

and regulates a market of last resort for those who cannot otherwise obtain

coverage. These groups have various names, depending on the state you live in,

such as “assigned risk” plans or the “residual market.” Your independent agent will

know more about the specific programs in your state.

Regardless of the reason you were dropped, you need to act immediately to get

a policy. Under no circumstance should you drive your vehicle without insur-

ance. Call your agent to help you find new coverage. If you do find yourself in the

residual market, the price may be higher but it may be your only alternative in

maintaining your freedom to drive.

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How do I keep my insurance company fromcanceling my policy?

The most obvious way to maintain your low-risk status is to keep a clean driving

record. If you’ve been in an accident, consider taking a defensive driving course.

Even those who have been driving for years rarely know the simple tricks to pre-

venting accidents through defensive driving.

Also, look into purchasing special safety and security features for your car, such as

anti-lock brakes and an alarm system. Your insurance agent can give you further

tips on how to convince your insurer you’re a safe driver.

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What steps can I take to reduce my rates?

Insurers often discount their rates for good drivers and those who take safety and

security precautions. Depending on the insurer, you can often lower your rates

from 5 to 35 percent.

Sometimes the investment you make in your vehicle is worth the discount, and

sometimes it’s simply worth some peace of mind. For example, the purchase of

anti-lock brakes merits a discount from nearly every insurer, but the discount

probably will not pay for the brakes during the normal life of your vehicle.

Insurers generally offer discounts for:

• SafetyFeatures—Anti-lock brakes, air bags and passive restraint systems

(i.e., automatic seat belts).

• DefensiveDriving—Clean violation record, driver’s education courses for

teenagers and defensive driving or accident prevention courses for adults

(insurance discounts for the latter are required in some states).

• SecuritySystems—Alarms, electronic locks and disabling devices.

• ChangingDrivingHabits—Commuting by public transit, using a company

vehicle for work-related travel and car-pooling.

• FormalAgreementsNottoDrinkandDrive—The availability of a discount

for signing such an agreement varies among insurers and states.

• BuyingHomeownersandAutoPoliciesfromtheSameCompany—If you

own a home and an automobile and you are insured by two different

companies, check into the cost of carrying both policies by one insurer. Your

agent can give you guidance as to which insurers offer discounts.

You can also lower your insurance rates by requesting higher deductibles (the

amount of money you pay before you make a claim). Increasing your deductibles

on collision and comprehensive coverage from $100 to $250, or even $500, will

bring your rates down. Moreover, you may not need collision and comprehensive

coverage if you drive an older car. Ask your agent which discounts are available to

you.

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How does adding drivers to my policy affect my rates?

The more people you allow to drive your vehicle on a regular basis, the greater the

chances of your vehicle being in an accident. Teenagers are especially expensive to

insure because they are the least experienced drivers.

A driver’s education course can help ease the burden of insurance costs since it

teaches your teenager defensive driving techniques. If your child’s high school does

not offer driver’s education, try to find one offered by another school or a private

firm in the area. After all, the cost of driver’s education could be cheaper than the

extra cost of your insurance. (Many insurers offer “good student” discounts as

well.)

An adult’s driving experience can also significantly affect your rates. Don’t as-

sume that every adult you know has been driving since age 16 or is a competent

driver with a clean record. Again, taking a defensive driving course is a good way

for adults to prove they are responsible drivers, thus lowering their risk and their

insurance rates. (This is a great solution for new couples who are jointly insured

but unmatched in their driving skills or experience.)

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Who’s watching the insurance companies?

With few exceptions, your insurance company does not set its own rates. It re-

quests the right to charge appropriate rates from your state’s insurance depart-

ment, which responds with legal approval and authorization, provided the re-

quested rates are fair.

Every state has some sort of department, administration or agency that regulates

and monitors every insurer operating within the state’s borders. In addition to ap-

proving rates, your state’s insurance department is involved in all insurance mat-

ters on behalf of private citizens and businesses. It also issues operating licenses to

insurance companies and agents, based on their ability to meet the state’s require-

ments for conduct and knowledge about insurance issues.

Your insurance company works closely with your state’s insurance department to

make sure you are getting the best and fairest possible service within the state’s

guidelines. Contact your state’s insurance department if you want to know more

about how it serves your interests.

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Do I always need to buy insurance when I rent a car? Am I not covered by my own policy?

Most personal auto policies extend whatever coverage you have on your own vehi-

cle to the rental vehicle if the rental vehicle is a private passenger car, pickup truck,

van or trailer. However, if a rental auto is damaged, the rental car company might

be able to charge fees for losses or damages to the vehicle that are not covered

by your insurance policy. Therefore, it is often a wise idea to purchase the rental

company’s “collision damage waiver.” Be sure to check with your Trusted Choice®

insurance professional on coverage prior to renting a vehicle.

If you do not have your own insurance, be aware that many car rental liability

policies cover you, at best, only at the state’s required minimum. Also, you should

buy the collision and comprehensive coverage offered by the rental company for

your own protection. Plus, do not buy a collision damage waiver (CDW) from the

rental company assuming it is insurance. A CDW simply releases you from finan-

cial responsibility if you damage the vehicle you are renting, provided you comply

with the terms of the rental contract. However, those terms can vary considerably,

and CDWs are not state-regulated, which means they are technically not

insurance. It’s always a good idea to review your policy before renting a vehicle

and, if necessary, contact your Trusted Choice® insurance professioanl for clarifi-

cation.

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Am I covered for natural disasters or “Acts of God?”

Comprehensive insurance, which covers you for fire and theft, generally covers

you against damage by flood, earthquake, hail and other natural perils. If you have

special concerns about the safety of your vehicle in the face of Mother Nature’s

wrath, contact your Trusted Choice® insurance professional for information on

catastrophic coverage.

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What happens when I loan my car to someone? Is that person covered by my policy? Am I still covered?

Yes. Liability and coverage for physical damage (i.e., comprehensive and collision)

follows your car. So, if a friend borrows your car and has an accident, you’re still

protected against the cost of damages or injuries. Plus, if the driver of your car

is insured, his/her policy may also be available to cover the cost of damages and

injuries.

The same rules apply when you borrow someone else’s vehicle. Your own insur-

ance follows you no matter whose car you are driving. But the vehicle owner’s

policy is the key coverage if you have an accident.

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What should my policy include? Do I really need to read all the fine print?

While you don’t need a law degree or an agent’s license to understand your policy,

you should read it thoroughly. After all, it is a binding legal contract. If there is

anything you don’t understand, ask your agent to explain it to you. You have the

right to know what’s in your policy.

If you want clarification beyond your agent’s explanation, or if you want to be cer-

tain that the policy is completely valid, contact your state’s insurance department.

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What actually happens when I report anaccident?

When you received your insurance policy, instructions on who to contact to re-

port an accident should have been included. If you are unsure, call your Trusted

Choice® insurance professional as quickly as possible. While compensating you

for auto repairs or medical expenses is easy and immediate, determining liability

is more complicated. The adjuster will begin the settlement process, the length of

which will depend on the cooperation of the other party.

The amount of compensation for your loss can vary according to the adjuster’s

analysis of the damage. You do not have to accept the first amount of money you

are offered if it is lower than the cost of your repair or recovery. While you may

have to do some homework to prove your reported loss is valid, it’s worth it to be

certain your insurer lives up to the provisions of your policy.

Remember, negotiating with an adjuster is just business. Insurers simply want to

settle claims fairly in light of possible fraud. While it is your insurer’s responsibil-

ity to root out false claims, you pay the price in the end. In fact, you spend nearly a

dime on every dollar of your premium to cover the false claims of others. So, try to

keep an open mind when working with your adjuster to settle on a price that’s fair

to both you and your insurer.

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How can I challenge my insurers if they refuseto cover a claim?

Usually, insurers that refuse to cover a claim have a strong legal reason for doing

so—even if you disagree. First, contact your Trusted Choice® insurance profes-

sional if you feel you are being treated unfairly because your independent agent is

your strongest advocate in insurance matters. But if it is a legal problem, you may

have to hire a lawyer.

Talk to your agent if you have a problem with your insurer, and talk to your state

insurance department if you want more specific information on state regulations

and legal precedents.

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Under what circumstance do I not need certain types of auto insurance?

While most drivers today are generally insured for collision and theft, this coverage

may not be necessary for every vehicle.

Liability insurance, as mentioned earlier, is essential and in many states required.

But if you drive a clunker—an older car that isn’t worth much money—you may

be able to do without collision insurance. If you have an accident, repair costs

could easily be higher than the value of your vehicle, thus “totaling” it. This means

your insurer will pay you the total book value of your vehicle, and that could be

far less than the cost of your vehicle’s repair. So, collision insurance may not cover

your loss adequately.

Since it depends on special circumstances, ask your Trusted Choice® insurance

professional for guidance.

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Do I need special insurance for a classic car?

You should always talk to your Trusted Choice® insurance professional about cov-

erage of rare and valuable property. Since a classic car usually cannot be replaced,

you’ll probably want ample compensation if it is lost. A classic car, because it is

rare or unique, may indeed require a special insurance policy.

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www.TrustedChoice.com

To reprint the information in “The Consumer’s Guide to Auto Insurance”, please

include the following language: “Reprinted with permission from Trusted Choice®;

www.TrustedChoice.com.”

An important, but sometimes overlooked, factor to keep in mind is that there are

two kinds of insurance agents: those who represent only one insurance company

and those who represent more than one insurance company.

Agents offering only the policies of one insurance company often are referred to as

“captive agents,” because the company they represent does not allow them to offer

their customers competitive alterna¬tives.

By contrast, agents offering the policies of more than one insurance company are

called “independent agents” or Trusted Choice® insurance professionals, because

they can shop around for their customers for the best insurance values among a

variety of competing companies. Trusted Choice® insurance professionals can of-

fer you a variety of coverage choices and can customize a plan to meet your spe-

cialized needs. Most important, a Trusted Choice® insurance professional isn’t an

employee of an insurance company, so you have someone who works for you.

To find a Trusted Choice® insurance professional, go to www.TrustedChoice.com

and click on “Find a Trusted Choice® Agent.”

the consumer’s guide to auto insurance...injury every 14 seconds, and every 13 minutes a car...

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